PCs to Drop Below $500 Mark Soon

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Korean manufacturer Trigem will introduce the first fully configured personal computer for under $500 in November and offset its lower profit margins by charging for inbound customer service calls and selling upgrades via the Internet, a strategy that could change the way computers are sold.


The PC will retail for $549 with a $50 mail-in rebate card and have all the functionality of a PC selling for twice the price, the company said. It will be marketed at retail by E-Machines, a joint venture of Trigem and Korean Data Systems, Garden Grove, CA. E-Machines also is expected to roll out a $599 PC with an Intel Celeron 300 chip and plans to introduce an Apple iMac clone with a Celeron 333 chip for $599 in the first quarter of 1999.


E-Machines' marketing manager Young Song admitted the Asian financial crisis has helped increase the value of Korean exports and has kept manufacturing component costs low enough to introduce a PC at such a low price. The company also is following a strategy of selling just the computer -- including the monitor -- and charging for any additional services that would be standard and free with more expensive models.


"When you sell under $500, a customer's expectation of customer service is very low," Song said.


Purchasers of the $499 PC have a choice of paying for a warranty ranging from $39 to $59 a year and receiving free technical support or paying per call after the first two toll-free calls.


E-Machines also will set up a Web site next year to sell add-ons and upgrades to its basic lines of PCs. The company has partnered with Internet service provider Netcom, San Jose, CA, to offer Internet access plans ranging from $9.95 to $19.95 a month. E-Machines will receive $50 for every customer or a percentage of total revenues for every customer it signs up for Netcom ISP service, which translates to additional revenue of $15 to $20 per PC.


As PC prices continue to fall to a median range of $699 to $799, Piper Jaffray analyst Ashok Kumar expects more PC vendors to follow the lead of Gateway's YourWare and now E-Machines and adopt an e-commerce or ISP channel to generate additional revenue. The PC sales model soon could mirror that of cell phones, where users receive a discounted phone for signing an extended service contract.


"The buyer's mindset will go from buying a $2,000 machine and recycling every three years to buying a $499 machine and recycling every year," Kumar said. "This provides 80 percent of the functionality at 25 percent of the cost. It's a compelling price point in that it becomes almost a disposable item."


Kumar said rival PC vendors will take a wait-and-see attitude on low-end machines, but he warned that they can't wait too long to exploit the fastest-growing segment of PC buyers.
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